What the Heck Does Security Mean?

by Investing School on January 10, 2010

When people think of security, they think of something that will keep them safe. A security, financially speaking, means something very different. A security is a negotiable instrument that is fungible. Fungible means that the value of one unit of a particular commodity can have an equivalent from another commodity. There is a broad characterization of securities that are called debt securities. Debt securities can be banknotes, bonds and debentures. They can also be equity securities like stocks and derivative contracts meaning forwards, futures, options and swaps.

The company, body, or entity that issues the security is referred to as the issuer. Each country has a different regulatory system and it is this system that determines what will be considered a security.
Securities may be represented as a certificate. Even more common nowadays is the ‘non-certificated’ or ‘book entry’ form. Certificates may also be bearer. This means that the holder of the certificate has certain rights simply by holding the security or being registered as the holder. This may include shares of corporate stocks, mutual funds, or bonds that are distributed through companies, corporations or governmental bodies.

You can find securities classified in a number of ways. The can be put into categories according to currency of denomination, ownership rights, term to maturity, degree of liquidity, income payments, tax treatment, credit rating, industry, region or country, market capitalization or state.
Who issues securities? Securities can come from commercial companies, governmental agencies and international organizations.

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